In the face of a China-US trade dispute, domestic demand in both economies will shrink, which in turn would negatively influence the South Korean economy, the think tank Korea Development Institute said Monday.

Further, the agency advised authorities to diversify its exports markets in the wake of growing trade protectionism led by the US, while preparing to prevent any backlash from the China-US trade disputes from spreading to the Korean economy.

Due to China’s processing trade quotas, the global supply chain between Korea and China weakened, the think tank noted.